How Does General Journal Accounting Work?

General journal accounting is the systematic process of recording all financial transactions in chronological order as they occur. It serves as the primary "book of original entry" where businesses first document every transaction before transferring the data to the general ledger.

That is why enterprises must use a general journal to ensure every financial transaction is recorded accurately and systematically. It is the first and equally essential step that helps you collect all financial data and prepare it for sorting in the general ledger.

Below is a detailed guide on general journal accounting—what it is, how it works and how to automate it.

What Is General Journal Accounting?

General journal accounting refers to the process of recording every financial transaction as it occurs. Every time there’s a business transaction, you have to note it down in a sequential, chronological order. Each entry includes details such as the date, a brief description of the transaction and the amounts involved on both the debit and credit sides.

Every transaction has both a debit and a credit entry to maintain balance, meaning it uses the double-entry system. The applicable accounting standards, such as IFRS, US GAAP, or local national standards, depend on the company's regulatory requirements.

Example of a General Journal Entry

On January 10, 2025, ABC Enterprises provided consulting services on credit for $25,000 to XYZ Corporation. Since this transaction involves recognizing revenue and increasing accounts receivable, let's walk through how to record this properly.

Step 1: Assign an Entry Number

Every journal entry should have a unique reference number for tracking and audit purposes.

Entry No. 001

Step 2: Record the Transaction Date

Document when the transaction occurred, not when it was recorded.

Date: January 10, 2025

Step 3: Identify Which Accounts Are Affected

What accounts does this transaction impact?

In this case:

• Accounts Receivable (Asset account) – increases because the customer owes us money
• Service Revenue (Revenue account) – increases because we've earned income

Step 4: Apply the Double-Entry System

Every transaction must have equal debit and credit amounts. Use these rules:

• Debit = Increases in assets, expenses, or dividends
• Credit = Increases in liabilities, equity, or revenue

For our example:

• Debit Accounts Receivable $25,000 → Because it's an asset increasing
• Credit Service Revenue $25,000 → Because it's revenue increasing

Step 5: Format the Entry

The Importance of an Accurate General Journal

Having an accurate general journal is the backbone of your financial record-keeping. Here’s why it matters:

• It’s a prerequisite for the general ledger: Every journal entry flows into the general ledger and ultimately shapes your financial statements. Errors made here ripple through your entire accounting system, compromising the reliability of balance sheets, income statements, and audit reports.
• It makes account reconciliations easier: Accurate journal entries make account reconciliation faster and easier. You can quickly trace transactions, identify discrepancies, and resolve issues before they complicate month-end or year-end closing processes.
• Regulatory compliance: A well-maintained journal demonstrates adherence to accounting standards (IFRS, GAAP, local regulations) and creates a clear audit trail that satisfies regulatory requirements and simplifies external audits.
• Prevents and detects fraud: A well-maintained journal creates transparency and accountability. Every transaction is documented with dates, descriptions, and amounts, making it difficult for unauthorized or fraudulent entries to go unnoticed.
• Supports informed decision-making: Accurate journals provide management with reliable financial data for strategic planning, budgeting, and performance analysis.

What Comes After the General Journal Process?

After recording transactions in the general journal, the accounting typically cycle moves through two stages:

1. Posting to the General Ledger

After you record all business transactions in the general journal, the next step is to post the entries to the general ledger. This process involves transferring each journal entry to the appropriate ledger accounts, which organises the data by account type.

2. Preparing the Trial Balance

Once you finish adding all the entries, you'll prepare a trial balance, where you list all the account balances to check that the total debits equal the total credits. This step is crucial because it confirms that you’ve followed the double-entry accounting system correctly.

General Journal vs General Ledger

These two accounting records serve complementary but distinct purposes:

The general journal captures the complete story of each transaction as it happens. The general ledger then reorganizes this information into account categories, making it easy to see total cash activity, total revenue, total expenses, and ultimately prepare accurate financial statements.

Both records are essential: the journal maintains your chronological audit trail, while the ledger provides the organized summary needed for financial reporting and analysis.

Automating General Journal Accounting

While manual journal entry works for small operations, it doesn't scale efficiently. 33% of accountants admit to making data entry errors multiple times per week -  a rate that becomes unsustainable as transaction volumes grow. This is where enterprise-grade journal entry software becomes indispensable.

• Efficient automation: Instead of doing everything by hand, you can use modern software to automate routine entries so that every transaction is recorded accurately and promptly. This automation not only saves time but also reduces the risk of human error, which will make auditing quicker and easier.
• Advanced customisation: For non-routine transactions (e.g., asset sales and bad debt recognition), accounting software can be tailored to meet the specific needs of your enterprise.
• Enhanced accuracy and oversight: Accounting software minimises discrepancies thanks to its built-in validation and error-checking features. It also provides the option for human review when needed, ensuring that the data remains reliable.
• Real-time reporting: Automating the general journal means you have access to real-time data at any point in time. You can use up-to-date financial insights to get a clear picture of your enterprise’s financial health at any moment.

How Aico Can Help Automate Journal Entries

The Aico platform has one goal: to boost your finance team’s productivity. Our automation software allows you to:

• Automatically post journals after payments
• Integrate with various ERP systems, including SAP, Oracle and Dynamics 365 to keep accurate data coming in consistently
• Monitor compliance to ensure that you’re always up to date with the latest industry regulations

" There are many reasons why we chose Aico: the real-time integration that it offers with SAP, but also supporting other ERP systems."

— Ralph Wieskamp, Head of Accounting Services at Sanoma
Want to learn more about what we can do for your financial team? Contact our team and schedule a consultation with us today.